Will going “car-lite” result in COE premiums reaching that stratospheric level?
THE anti-car sentiment in Singapore has never been stronger than it is now. Hardly a month passes without the Government expounding the virtues of a “car-lite” city. And in no uncertain terms, those repeating the mantra equate “car-lite” to “fewer cars”, ignoring available technology and policy tools that can bring about a “carlite” society by tempering usage rather than ownership. Yet, we are building more roads, including a huge arterial that cuts through a historic cemetery and a multi-billion-dollar highway that parallels the Central Expressway. Future plans for an underground network in the city centre are still intact.
The irony of this is lost on policymakers who chant “car-lite” like a prayer. Truth is, several cities are “car-lite” without the draconian anti-car measures Singapore has embraced – New York City, Hong Kong, Seoul and Paris, to name a few. With the exception of Hong Kong, car ownership is higher elsewhere than in Singapore. Yet, all these cities are liveable, with excellent train, bus and taxi services. Many others are also friendly to pedestrians and cyclists. In these cities, people choose to use the car lightly, or not at all. In Singapore, there is no choice.
Choices are made for the population. In this environment, it is not surprising that stockbroking research house CLSA put out a report recently that said car COE will hit $200,000 by 2025, or 10 years from now. It is not immediately clear where or how CLSA arrived at this number. But looking at Singapore’s population growth trend, economic growth direction, and the deliberate attempt to stifle car population growth, you don’t need to be a high-flying analyst to come up with such a forecast. What are the chances of this terrifying forecast becoming real? Let’s take a look. Now, $200,000 is about $150,000 in today’s terms.
That is still close to three times the value of prevailing car COE premiums. If Singapore’s population were to hit 6.9 million by 2030, it would probably grow on average 93,500 per year over the next 15 years, which means by 2025, it would grow by 935,000. Assuming that one-third of this additional cohort of people will want to have cars, that would translate to over 300,000 more people. The number is not unrealistic, since much of the enlarged population will be from migrants. And Singapore tends to favour economically productive folks. The rich from around the world will continue to see Singapore as a businessand tax-friendly location. Including the teens today who will be of car-buying age by then, 300,000 more people who aspire to own a car is quite conceivable.
So, we will have 300,000 more people wanting to have cars. If all of them are able to own a car today, the car population would grow by nearly 50 percent to about 900,000. If this 50 percent boost in latent demand translates to a 50 percent rise in COEs, premiums would hit $90,000. (In all likelihood, a 1 percent increase in demand will translate to a 1.5 percent increase in prices, but let’s be conservative in this discourse.) In 10 years’ time, COE supply would revert to the “famine” part of its cycle. On top of that, the Government had said that it intends to bring annual growth to zero (from 0.25 percent today). Quite conceivably, the COE quota in 2025 will be half the size it is today – if not smaller.
That, in turn, is likely to translate to at least a 50 percent increase in COE premiums. A 50 percent rise in the $90,000 figure we arrived at earlier would give us $135,000. As you can see, that is not too far from $150,000, which will be worth $200,000 in 2025. And that is not even taking into account growing affl uence. But will the Government allow COEs to reach that high? Quite unlikely. When premiums threatened to reach $100,000 two years ago, the Government introduced market cooling measures (namely car loan restrictions and a tiered taxation system that jacked up the prices of most cars) that swiftly brought COEs down to earth. In all likelihood, there may be a rethink of the COE system before 2025.
With the new distance-based electronic road pricing system ready by 2019, perhaps Singapore can rely less on a quota system to keep its roads relatively free-flowing. Or such a system could exist in a diff erent form (such as one based on kilometres clocked rather than number of years). By then, several of the new MRT lines will also be completed. In such an environment, it will be feasible to allow higher car ownership, since people will decide for themselves to drive judiciously. If people make that choice themselves, they will resent the Government less. On its part, the Government will not have to bear the consequences of a $200,000 COE, and yet it would quite likely be able to achieve its “car-lite” ambition. In the meantime, those in power who chant the “carlite” mantra might want to lead by example.
